Seasonal and Stochastic Features in Commodity Markets
After reviewing some of the unique features of commodity markets, we will propose a new model for the dynamics of forward curves. Instead of using the commodity spot price as the first state variable,like in the existing literature, we argue instead that the average value of all liquid forward contracts is a much better candidate. It is devoid of seasonality and conveys a more robust representation of the global forward curve, a key economic indicator. The cost- of- carry relationship is extended to account for seasonality and stochasticity and applications to strategic energy commodities are described.
Helyette Geman, Birkbeck University of London, United Kingdom and ESSEC Business School